Dapper Labs, a leading non-fungible token company whose products include NBA Top Shot and CryptoKitties, was under investigation by the Securities and Exchange Commission until September, according to an internal agency document obtained by luck.
In what the SEC calls a “case closure report,” David Hirsch, head of the regulator’s cryptocurrency and internet unit, concluded an investigation titled “Dapper Labs, Inc.” On September 29th. The one-page report did not include why the agency was investigating Dapper Labs, when the investigation began, or why the SEC decided to shut it down.
The agency did not release luck A five-page collection of recommendations associated with the report. An SEC spokesperson said: “The SEC does not comment on the existence or absence of a potential investigation.”
The regulator's decision in late September to close its investigation into Dapper Labs, which has raised more than $600 million since its first funding round in 2018, according to Crunchbase, follows the SEC's settlements first with Impact Theory in August and then with Stoner Cats in mid-September. . In the SEC's first-ever attack against the NFT industry, the agency argued that both NFT projects offer and sell unregistered securities and thus violate federal law.
Separately, Dapper Labs is fighting an ongoing class action lawsuit in which plaintiffs allege that NBA Top Shot Moments, the NFTs sold by Dapper Labs, are unregistered securities. In February 2023, the federal judge presiding over the case declined to dismiss the suit, writing that it was “facially plausible” that Moments were securities.
“We were never contacted by the SEC, and as a result were unaware of this investigation,” a Dapper Labs spokesperson said. “Regardless, it appears the SEC has closed its case.”
From CryptoKitties to layoffs
In late 2017, Dapper Labs, led by co-founder and CEO Roham Gharegozlou, created CryptoKitties, a blockchain-based game where players create and trade NFTs for cartoon cats. These “wonderful” creatures have helped inspire the NFT craze and attracted startup investors, including Andreessen Horowitz, Union Square Ventures, Google Ventures and others.
Dapper Labs has followed the success of CryptoKitties with Top Shot, an NBA-sanctioned marketplace where users can purchase video highlights from their favorite basketball players, as NFTs. The concept, which resembles a digital version of a trading card game, quickly became a hit, and monthly sales swelled to more than $226 million in February 2021, according to data from CryptoSlam.
Raising more and more venture capital, including investments from NBA players themselves, Dapper Labs soon struck deals with the NFL and LaLiga to create similar products. But in 2022, the market collapsed, with total NFT sales volume falling from an all-time high of more than $6 billion in January 2022 to a level of just under $300 million in September 2023, according to CryptoSlam. Top Shot's volumes similarly fell to a low of just over $2 million in monthly sales volume in the same month.
Dapper Labs quickly made layoff after layoff, with its last public cut coming in July 2023. Since then, the company has shrunk from about 200 employees to just under 180, according to a spokesperson.
SEC against NFT
Following the collapse of cryptocurrency exchange FTX, the SEC has steadily sued and investigated a range of cryptocurrency companies, including TRON Foundation, Terraform Labs, Binance, Coinbase, Kraken, and now Uniswap. The settlements with Impact Theory and Stoner Cats in the second half of 2023 indicate that the regulator is beginning to seriously scrutinize the NFT industry.
The agency's decision to close its investigation into Dapper Labs, one of the most well-funded companies on the market, may signal a course correction. “It will certainly provide some sort of relief to participants in the NFT market,” said Philip Moustakis, a securities attorney at Seward & Kissel. luck.
“You can't assume that all NFTs are secure. The SEC has already made it clear that some transactions in NFTs could constitute securities transactions,” he added.
Arthur Jacoby, a former SEC prosecutor who now specializes in securities issues at Herrick, Feinstein LLP, cautioned against over-interpreting the agency's closure of its investigations. He added: “This does not mean that they will not investigate them next year.” “That doesn't mean they think Dapper Labs did nothing wrong. It doesn't mean they purged Dapper Labs.”
This also doesn't mean the end of securities-related lawsuits for the former NFT giant. The class action lawsuit against Dapper Labs, in which plaintiffs allege NBA Top Shot Moments are unregistered securities, continues on its way to federal court. The judge presiding over the case ordered both parties to complete depositions by June 17.
